More FERC Investigation Risks


New transparency practice turns confidentiality on its head.

New transparency practice turns confidentiality on its head.

Fortnightly Magazine - March 2011

The Federal Energy Regulatory Commission (FERC) now authorizes the director of its Office of Enforcement (OE) to cause the names of subjects under investigation, and summaries of their alleged wrongful conduct, to be noticed to the public earlier than had been the practice. 1 Moreover, such public disclosure occurs before either FERC’s own, independent review of staff’s prosecutorial recommendations, or any findings of wrongdoing by FERC itself. 2 Where FERC’s traditional approach has treated staff preliminary findings as confidential, presumably in part serving interests in due process and a presumption of innocence, its new, make-public-earlier approach increases risks of reputational and other harms for subjects of investigations. Targeted subjects now must interact with staff very carefully for purposes of initial staff reviews of information, preliminary examinations of identified activities, investigations, fact discovery and gathering through data and document requests, interrogatories, interviews, depositions, and preliminary findings letters.

Without evident concern for other entities’ potential uses of staff’s information at FERC or elsewhere, FERC paints its accelerated public notice as merely a procedural exception to the traditional, confidential status of staff’s beliefs. In justification, FERC foresees as a positive development that other market participants will step forward to inform OE staff about previously unknown factors concerning the asserted violations staff has preliminarily noticed. FERC also anticipates staff use of the factors against the targeted subjects in later settlement negotiations or litigations. FERC plans to monitor its accelerated public notice procedure for possible reconsideration after an OE staff report on the mechanism’s employment in 2010-’11.

Traditional Confidentiality

In the Energy Policy Act of 2005 (EPACT 2005) Congress authorized FERC to impose substantial monetary and other penalties for violations of rules, regulations, statutes, and orders that FERC administers. 3 The agency can penalize for any FERC-jurisdictional matter after non-adjudicative investigations, which under General Rule Part 1b may be preliminary or formal, private or public. Preliminary investigations are non-formal investigations conducted by FERC or its staff. 4 By longstanding general principle, all information and documents obtained during investigation, whether or not subpoenaed, and all investigative proceedings, are treated as non-public by FERC and its staff. 5

After EPAct 2005, staff has undertaken many confidential, non-public preliminary examinations of possible violations. Staff also may decide to open a confidential Part 1b investigation. As facts emerge, staff either may form an opinion that a violation occurred or, in many situations, may end investigations without further action. If violations are suspected, staff can provide a preliminary findings letter, containing supporting facts and reasons, to the subject under investigation and the subject may respond.

After that preliminary findings letter and response stage, OE staff’s findings and opinions traditionally had remained confidential for possibly considerable intervals. That confidentiality often had ended with either the benediction of an order of settlement between FERC and the subject, or FERC’s challenge in an order to the subject to show cause why a violation hadn’t occurred.